More on the Minimum Wage

Dave SchulerJanuary 29, 2014

The chart above, from the Bureau of Labor Statistics, illustrates the minimum wage in 2012 dollars from its inception in 1938 to 2012. As you can see, the present minimum wage is just about trend. The low point was in 1938 when it started. Its high point in 1968.

The president is proposing to return the minimum wage to that level. The arguments in favor of doing so are the ones he’s made—the minimum wage is not a living wage. The arguments against are that the minimum wage is not intended as a living wage, the number of individuals that receive the minimum wage is very small, and many of those who earn minimum wage are young workers with low skills who aren’t trying to live on it.

The effect that raising the minimum wage would have on employment is a bone of contention—there are arguments both ways. One point that hasn’ been mentioned—the uptick in illegal immigration began just about the time that the minimum wage reached its peak. That might just be a coincidence or it might be that a higher minimum wage would incentivize a black market in labor of which illegals are a significant part.

I think it’s reasonable to speculate that the president wants to see the minimum wage play a different role than was intended and than it has historically. As I’ve said before, I’m of mixed minds on this subject. To gain my full support I’d need to believe that an increase in the minimum wage would help a lot more people than it would hurt and that it wouldn’t have much in the way of adverse unintended secondary effects. Neither of those seem to have been explored much in the discussion to date.

Well, clearly lowering the minimum wage in real terms – which is what we’ve been doing for quite some time now — did not cause a sudden eruption of new jobs contra everything Republicans have to say on the subject.

For example, in 1950 the minimum wage rate jumped from forty cents to seventy-five cents an hour (87.5% increase), while at the same time the payroll tax rate went from two percent to three percent (50% increase) The payroll tax is tough on the lowest earners and I would be surprised if these were not linked.

The payroll tax rate keeps increasing up through the 80s, while minimum wage increases peak in ’68. The minimum wage as a means of poverty control became less popular in the 70s and 80s in the face of the earned income tax credit, beginning with Ford and more significantly Reagan. Economists seem to prefer the EITC as less disruptive and more directed towards poverty. Its also presumably more effective at curbing the black market.

I don’t understand why almost none of our political class, and none of the ones that matter, thinks that one way to get wages to rise would be to restrict the labor supply by, you know, enforcing the immigration laws on the books. Or, God forbid, even lowering the amounts of LEGAL immigration into the country.

I bet a third trend line on that graph, the percentage of workers born in a foreign country, would track nicely with the decline seen since 1968.

EITC does seem to make a lot more sense. Raise people to a living wage, but spread the increased labor costs over all taxpayers.

The downside though is the large percentage of the population that isn’t paying taxes. (yeah, I know I’m channeling Romney.) I wonder if there is a way to phase out the EITC for recipients after a time period, say 5 years. Let it be a temporary boost with the assumption that those entry level jobs really are entry level jobs.

Finally, if we are serious about economic growth, it is time to heed the call of business leaders, labor leaders, faith leaders, and law enforcement – and fix our broken immigration system. Republicans and Democrats in the Senate have acted. I know that members of both parties in the House want to do the same. Independent economists say immigration reform will grow our economy and shrink our deficits by almost $1 trillion in the next two decades. And for good reason: when people come here to fulfill their dreams – to study, invent, and contribute to our culture – they make our country a more attractive place for businesses to locate and create jobs for everyone. So let’s get immigration reform done this year.

Yeah, the only possible way to grow the economy is to introduce millions more Raul the gardener at the bottom of the wage scale. They’re going to point to Sergey Brin, of course, but that’s not really what’s going to happen and they know it.

Further, it’s not like we haven’t had a decent economy before without large numbers of immigrants.

Would raising wages at the bottom be worse than what we have now? A consistent pattern of those skeptical of government action is being blinded to existing mass dysfunction by fear of negative consequences.

Doing nothing has consequences too, but those usually get a pass or are treated as the “natural” way of things.

“I don’t understand why almost none of our political class, and none of the ones that matter, thinks that one way to get wages to rise would be to restrict the labor supply by, you know, enforcing the immigration laws on the books. Or, God forbid, even lowering the amounts of LEGAL immigration into the country.”

I agree that we should control immigration, that we have not only a right to do so, but an obligation, and that our guiding principle in doing so should be the welfare of American workers, not the profit-seeking of employers.

We have the issue of agricultural workers, which is a sort of stand-alone issue since in that sector we need large numbers of seasonal people. It’s not just us, either. When I was living in Italy, a country with some very serious unemployment, when it came time to harvest the grapes and the olives I’d see the fields full of people who were pretty clearly not Italian.

But that doesn’t excuse restaurants or lawn maintenance or chicken sexing in Delmarva.

I wonder if part of the problem is that low wages just make it not worth an American competing for the work. It makes sense if you’re living six guys to a trailer and sending checks home to Guatemala where 20 bucks one way or the other can be huge. It makes a lot less sense if you’re a citizen thinking, well, I could work like a dog for 40 hours and still be living in a packing crate. Won’t people compete more for better-paying jobs? After all, citizens do have some innate advantages that would get them the work if they thought it was worth going after.

Keep the borders tight, sanction the hell out of employers who hire off the books illegals for below minimum, and raise the minimum wage so citizens are incentivized to compete for those jobs. Because if no one is showing up to mow lawns and you’re a lawn maintenance company, you’re going to risk the sanctions just to stay in business.

A consistent pattern of those skeptical of government action is being blinded to existing mass dysfunction by fear of negative consequences.

I am not by nature a radical. I think the basic guideline for policy should be primum non nocere, “first do no harm”, rather than “if just one person ”.

That’s why I’m more favorably disposed to the Senate Democrats’ plan to raise the minimum wage gradually, which provides an opportunity for damage control, than the president’s plan to raise it all at once, which doesn’t.

I wonder if part of the problem is that low wages just make it not worth an American competing for the work.

There are different political objectives competing, rooted in different visions of what kind of country different people would like the United States to be. The bifurcation isn’t along party lines. It’s more complicated than that.

I’d like an America in which the top 10% don’t earn quite as much and the poorest earn a bit more but I’m apparently out of step with the Powers That Be. They appear to want an America in which the top 1% of earners do very well indeed, below that there’s a large body of well-to-do people whose incomes are heavily subsidized, a small, struggling middle class, and a lot of very poor or working poor. The similarity to Mexico is probably just a coincidence.

I stopped watching a long time ago. I used to read them, but it got hard to find in the newspaper. Now, I do not care.

The EITC is tied to work, and I think it could be designed to provide positive feedback for responsible behavior. It might not be the perfect approach, but it might be a lot better than what we have been doing.

They appear to want an America in which the top 1% of earners do very well indeed, below that there’s a large body of well-to-do people whose incomes are heavily subsidized, a small, struggling middle class, and a lot of very poor or working poor.

Again, what surprises me is that the system is so tied to big money that there isn’t any serious politician pushing for a system that isn’t as you describe. Decades of campaign finance “reform” have resulted in a system completely owned by the rich and powerful.

I also find that the way the restriction on debate to be amazing. I don’t mean that certain topics can’t be discussed, or that certain opinions are forbidden. I mean that the political opinion has been largely reduced to a very narrow band of thoughts. The debate on inequality is the best case in point.

On one side, we have people that are notionally against increasing inequality. But they basically only offer two (significant) proposals for changing the current situation: raising the minimum wage and taxing rich people more. It’s hard to see how raising the minimum wage is going to do much to change the trajectory, and, as Schuler has pointed out repeatedly, rich people do a pretty good job of avoiding onerous taxation.

On the other side, you get two groups: One side which is in favor of more inequality (the libertarians) because it meets with their ideological expectations, and old-time conservatives who just think that any talk of inequality is a cover for socialism.

It’s not even possible to have a debate that thinks that (a) too much inequality can be destabilizing for the Republic, and (b) that there might be ways of addressing increasing inequality OTHER than taxing the richmore or raising the minimum wage. Each side is committed to rejecting at least half of that premise right off the bat.

It’s really astonishing that the debate is over before it even begins because opinions on both sides have been narrowed so much that people can’t conceive of anything outside of the very narrow bounds of their own received beliefs.

if capital incomes are more concentrated than incomes from labor (a rather uncontroversial fact), personal income distribution will also get more unequal — which indeed is what we have witnessed in the past 30 years

I’d need more evidence. My hipshot reaction is that it’s untrue when looked at from a global perspective. Over the last 30 years incomes in China have gone up enormously. China has gone from one of the poorest countries in the world to a middle class country.

If your objective is increased income equality, there are several ways that can be accomplished from a mathematical standpoint. You can make the poorest richer. You can make the richest poorer. You can’t get accomplish the task by redistributing within the top 10-20% of income earners which is what we’ve been doing.

Combine the income increases among the poorest and the large number of people and China’s story is one of increasing income equality on a global level. That doesn’t make things any more comfortable for middle income people in the United States.

It astounds me that people cannot conceive that there might be ideas out there that don’t fall into the very narrow band of “Republican” or “Democratic” that are actually reasonable, good, and fall within bounds that might be reasonably described as within the center of historic American thought.

That doesn’t make things any more comfortable for middle income people in the United States.

More importantly still, our political structure is set up assuming a fair-sized portion of the population will either be in the middle, or can at least aspire to it. As we end up looking more and more like Mexico we can expect the current political regime to break down more and more frequently.

One thing that would be interesting to see is a similar chart, except instead of federal minimum wage, we use a population-weighted minimum wage based upon federal _and_ state law. Many of the larger states have state minimum wages that render the federal rate moot. State Minimum Wages 1983 to 2014.

In 1983, only one state had a higher rate than the feds (Alaska). In 2014, twenty-one states did, including California, New York, Florida, Illinois, Ohio, and Michigan (six states constituting 35% of the population) Fourteen of states with higher rates either have indexing or future step increases.

I agree that we should control immigration, that we have not only a right to do so, but an obligation, and that our guiding principle in doing so should be the welfare of American workers, not the profit-seeking of employers.

We have the issue of agricultural workers, which is a sort of stand-alone issue since in that sector we need large numbers of seasonal people.

Ironically, Michael, those ideas are what Republicans are putting forth.

They want to do immigration in steps, rather than a big, old comprehensive plan like the dems want to push through. These steps would comprise assessing the border annually, to see that it was being secured, after which more seasonal work visas would be issued to accommodate our agricultural demands. I also think that calls for e-verification, along with employer sanctions for those deliberating employing illegals, have been stronger in conservative corridors of thinking than in the more liberal ones. From polls and research I’ve seen a great many illegals simply want work, not citizenship — something that an expansion of work visas would grant, without all the other unnecessary drama and political conflict.

Coupled with the above, are growing GOP murmurs of giving those already effected by Obama’s unilateral Dream Act enactment a path to citizenship.

Jan, the Republicans just want to do the same things the Democrats want to do, they’re just looking for cover from their base. They want to import tens of millions more peasants to crush wages, and give those already here citizenship for the same reason. It’s all just an attempt to avoid having their base get riled up at getting screwed over.

I’m just discussing the rhetoric put out by the two parties. The conservative plans, at least their lip service, is more cautious and appreciative of one’s legal status, it seems, than the democrats. Isn’t that why the democrats employ the “Anti immigration” meme towards the republicans when in campaign mode — which lately is 24/7?

Isn’t that why the democrats employ the “Anti immigration” meme towards the republicans when in campaign mode — which lately is 24/7?

Which makes it all the more amazing that Republican politicians are effectively adopting the Democratic open borders argument. It really let’s you know that they’re not even really all that concerned about the party’s electoral status long-term. Which is to say, they ultimately have no belief except in themselves.

One of my favorites. There’s a new prisoner at the prison. The first night after lights out he’s surprised to hear one prisoner after another call out a number, followed by uproarious laughter from everybody. After a while one of the prisoners calls out a number and there’s dead silence. Same prisoner calls out another number. Still silence.

The next morning he asks one of the older prisoners about it. The old prisoner tells him that years ago somebody received a joke book as a present. The jokes were numbered. Over the years they’ve learned all the jokes by heart and just hearing the numbers reminds them of the jokes.

He asks “But what about the guy nobody laughed at?” The response: “Oh, he has a lousy delivery.”

All of the guys in Washington have been having the same arguments for so long they’ve got them memorized. Everything has been reduced to a slogan. The sides understand the slogans are code.

….”open borders argument?” I don’t see that being the case, at least from what I’ve read and heard. There are contingencies within the R party that are more lenient towards opening up immigration. However, IMO, there is no consensus for that. In a way factions and debates within those factions are rampant in the GOP regarding many issues, immigration policy being only one of them.

I agree with Ice on this. It’s slogans and assumptions based on ideology. I wrote on OTB the other day that Democrats get a pass by virtue of Republicans being batshit. Clueless but not insane beats crazy. But the D’s are about out of steam and I’ll be damned if I see any intellectual momentum building up.

I’m increasingly wondering if we’ve all just been living through a historical anomaly, a strange and un-replicable time from which conclusions drawn are likely to be erroneous. What comes next could be revolutionary. There are things happening in computer technology and perhaps more unsettlingly in biotech that may profoundly alter the way we live and the way we understand human existence.

We may be living in interesting times as the Chinese curse would have it.

re what is a modest increase in the minimum wage – – The Meer and West study concluded that raising the minimum wage doesn’t lead to job losses, but reduces net job creation going forward. Effects of Minimum Wage on Employment Dynamics.

Their finding on the size of the effect:

a real minimum wage increase of ten percent reduces job growth in the state by around 0.5 percentage points (during these years, the average state employment growth rate was 2.0 percent annually). In other words, a ten percent increase to the minimum wage results in a reduction of approximately one-quarter of the net job growth rate.

So, a forty percent increase in the minimum wage has the potential of destroying normal employment growth. (Moody’s is currently projecting Illinois job growth next year at 1.2%.)

Scott Winship makes the interesting point that a minimum wage of over $10.00 would only be equivalent to the 1968 high point using a cost of living adjustment no longer used by many government agencies. Using the CPI-U-RS, today’s minimum wage would need to be $9.25 to match the 1968 high. Using the PCE deflator, the minimum wage would only need to be $8.32.

OT- For those interested, Don Taylor has been going over the Coburn-Hatch health care proposal and is looking at its scoring by a private concern, not CBO. He also has more in depth analysis of the particulars in the last few days. The bill is similar to the ACA in many ways, and while it does not increase the size of government, it does increase taxes. It also avoids any analysis of out of pocket spending. Those need to be filled in.

Overall, it is hard to see why one would vote for this and not vote for the ACA. The reverse is also mostly true, except that the primary purpose of the bill appears to be repeal. The ACA could be modified pretty easily to achieve the same ends.

So, summarizing: ObamaCare is RomneyCare, but it’s tyranny and communism and also Islamism plus Naziism, so the GOP has a bill that does the same things in pretty much the same way, but it wouldn’t be called ObamaCare so it’s going to be much, much better for having 100% fewer negro presidents involved.

Maybe we could save time and just rebrand ObamaCare as ReaganCare. Wouldn’t need to change a thing but it would poll much better in the south.

scales back the Medicaid expansion
allows Medicaid enrollees to buy private insurance (what will be labelled at least partial privatization of Medicaid)
gives conservatives complete victory on religious freedoms issues
eliminates the individual mandate
eliminates the exchanges
eliminates the tax on medical devices/prescription drugs
restores and encourages the Health Savings Accounts
removes federal insurance quality mandates
increases the ability to rate on age
allows insurers more flexibility in setting premiums by age

This looks to me like it gets back to close to what McCain campaigned on in 2008, which the Obama Campaign called the largest middle class tax increase in history because it also sought to eliminate or transition out of the employer sponsored healthcare tax credit.

I would not be surprised if the numbers don’t add up; I don’t think they ever do; they’re just covered with assumptions.

Dave Schuler: Combine the income increases among the poorest and the large number of people and China’s story is one of increasing income equality on a global level.

Income inequality has increased substantially in China. The process is called industrialization. People in subsistence agriculture move into high-GDP industrial production. Once this process is largely over, growth will return to more sustainable levels.http://www.kkr.com/images/insights/14-images/charts-14.png

According to the World Bank publication, “Inequality Among World Citizens, 1820-1992”, Bourguignon and Morrison, 2002, global inequality as measured by Gini coefficient peaked around 1979 and has declined since, reversing a trend that goes back almost two centuries.

PD- Not really clear if it really eliminate exchanges. Much of the rest is window dressing (religious freedoms, mandates, device taxes, age rating). They could do that within the ACA if they want. They are already letting states use Medicaid money to buy private insurance under the ACA. It will be more expensive, but if states want to do it, they can. HSAs are already allowed under the ACA.

@steve, I think it might only be the state exchanges being run by the feds that would be eliminated.

But the totality looks like traditional Republican ideology. A healthcare market driven by consumer choice. The government doesn’t get to decide what is good insurance and what is crappy insurance or force the consumer to buy something they don’t want. Refundable tax credits are used to assist those with less money buy catastrophic care coverage.

That’s coming from a very different place than the Democrats, whom are concerned that real choice of insurance doesn’t always exist or that some people will choose poorly or be misled by insurance companies. Catastrophic care does not address the need for preventive care to control costs. Health Savings Account are tax dodges for the wealthy.

(I’m not clear about pre-existing conditions, but it looks like it allows people to stay with their existing plans without getting charged more, so long as they keep continuously insured. That would come across as posing a significant risk for people who drop their insurance)

While still “allowing” HSAs, the ACA negatively impacts them in various subtle ways, by reducing HSA options and increasing the penalty for taking money out of the account for non-medical purposes.

Regarding the differences of let’s say the CBH HC proposal and the current PPACA — PD’s list was a considerate one pointing out said differences. IMO, though, such a replacement bill’s biggest benefit is that it generally gives back the individual ownership and control of one’s own HC , by supplying more medical care options and doing away with the mandate provisions.

Again, if one’s philosophy centers on government being the overall enforcer of everything to do with one’s life, including education, student loans, health care and now even retirement choices, then no other HC idea (especially anything offered by the conservative faction) will be satisfactory, and liberal partisans will find fault with whatever is proposed.

My take on preexisting conditions is that state pools for those with preexisting conditions would be created, and insurance companies would be expected to contribute funding to them. I don’t know, though, if those who have now been insured with these conditions, could remain untouched on these ACA provisions or not.

PD- As I have said before, the ACA draws upon Republican ideas. It would be pretty easy to adjust it to become a plan that fits closer to their ideals. Most people dont realize how close it is already. If you read Taylor’s earlier analysis of the details on how it functions, and drawing from the consulting firm that rated it, the plan would provide fairly narrow networks much like we see happening in the ACA as a means to control costs. Far from providing more options, it likely narrows them further. Also, one should remember that they are assuming that people actually want to have health insurance, the same assumption made in the ACA. If people end up not buying it in the ACA, I dont see why they would suddenly buy it because it is a GOP plan.

jan- As I said to PD, the analysis of the plan suggests more narrow networks. If you are referring to the idea that plans could be more innovative in what they offer in any given plan, we already have had that prior to the ACA. It did not result in better products. Indeed, if you have ever had to buy insurance for your company and try to read over the many plans available, what you mostly see is obfuscation. It is difficult to make direct apples to apples comparisons between plans. The ACA forces insurance companies to compete on actual costs because the plans are required to provide similar coverage.

That said, it would be easy to change. If you think the coverage requirements are too numerous, reduce them. I would be a bit surprised, only a bit, if you could not get together enough votes to change those. I suspect some Dems would go along if they come from a more conservative or non-safe district.

Watch all three parts, it’s well worth it. The TLDR version is that Stewart spend 1/2 hour trying to get the minory leader to acknowledge some basic truths about governance in America. Stewart gets it, Rep. Pelosi either doesn’t or is disingenuous or both. At the end the audience is laughing at her continual attempts to divert the argument away from competent governance toward partisan ideology. It is, frankly, depressing and it gives me no hope for any kind of substantive government reform.

Dave Schuler: According to the World Bank publication, “Inequality Among World Citizens, 1820-1992″, Bourguignon and Morrison, 2002, global inequality as measured by Gini coefficient peaked around 1979 and has declined since, reversing a trend that goes back almost two centuries.

Interesting paper. To clear up a misunderstanding, we had thought you used the word “globally” to refer to across China. We apologize.

Not sure where you got “1979” as the peak. Bourguignon and Morrison’s study doesn’t purport to that sort of resolution. They say that income inequality increased until about the mid-twentieth century, then plateaued, saying “There is comparatively little difference between the world distribution {of income} today and in 1950.” Another interest point from the paper. Since the industrial age, differences between countries have been greater than within countries.

Andy- Many people, including jan and maybe PD are advocating for the latest GOP plan, while claiming they hate the ACA. The plans really are not that much different. The ACas could easily be modified to approximate the Coburn plan. For that matter, the Coburn plan would need to be modified to pass also, so it would be easy to make it look more like the ACA. WHat I think is important to remember is that both parties are relying upon many of the same ideas. For years, the GOP has advocated for plans that required very narrow networks and high deductibles to work, even higher than the ones in the current ACA. After talking smack about how bad the ACA is for imposing narrow networks and high deductibles, they turn around and offer the same thing.

Might it be offered or run more competently if done so by the GOP? I see no evidence of that. People forget that Medicare Part D, a simpler program, had its difficulties and also included risk corridors, the so called insurance company bailouts, that the GOP is now complaining about.

I can’t speak for anyone else, but my own view is that any plan will have major problems absent serious reform of federal institutions and processes. There are major systemic problems in the federal govt. This is a point that Nancy Pelosi and her peers in Congress on both sides seem oblivious to.

As for reform, I’ll just repeat what I’ve said before which is that I’m not ideologically predisposed to a particular solution, but I’m also skeptical of the rosy assumptions underlying popular solutions like single-payer or HSA’s, or the Ryan plan. That said I think any reform should have three objectives:

1. Get employers out of the health insurance/care business
2. Replace fee-for-service with a better model.
3. Focus on value for health-care dollar spent.